Stockholm-based iZettle, which had been pursuing an IPO, provides payment services to small and mid-sized operations in Europe and Latin America.
"We are not surprised to see [PayPal] put its impressive balance sheet to work for strategic M&A," Jefferies LLC analyst Ramsey El-Assal wrote in a Thursday report.
The payout comes to 11 times projected 2019 net revenue, PayPal said, and will dilute 2018 earnings by one cent per share.
The deal advances PayPal's goal of expanding within stores. "iZettle's signature mobile card reader and suite of tablet-based point-of-sale solutions represent another step in [PayPal]'s long journey to enable acceptance at the physical retail countertop," El-Assal noted.
Shares of San Jose-base PayPal gained 2% in trading Friday morning after CEO Dan Schulman said the company would gain nearly half a million merchants that do business on iZettle's global platform.
Shares of San Francisco-based Square (SQ - Get Report) , which is led by Twitter (TWTR - Get Report) co-founder Jack Dorsey and provides payments services to merchants, was down 0.13% on Friday morning after closing on Thursday at $54.82, a decline of 3.13% during the regular session.
iZettle CEO Jacob de Geer will continue to run the company following the deal.
iZettle expects to generate gross revenues of $165 million in 2018 sales in markets such as Brazil, Denmark, Finland, France, Germany, Italy, Mexico, Netherlands, Norway, Spain and Sweden. The company says it will process $6 billion in payments.
The parties expect to close the deal in the third quarter.
Paypal said it will discuss the transaction at its May 26 investor day.
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